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The ongoing international dispute over country of origin labeling (“COOL”) requirements escalated this week when the World Trade Organization (“WTO”) paved the way for sanctions against the U.S. On Monday, December 7th, a WTO arbitrator issued a report[1] authorizing Canada and Mexico to seek approval for sanctions of more than 1 billion Canadian dollars and more than 227 million U.S. dollars per year, respectively. One of the U.S. products that Canada and Mexico have threatened to target is wine.

As I wrote in June, this dispute arose over the labeling of muscle cuts of meat. Canada, Mexico, and the U.S. are parties to the General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Technical Barriers to Trade (TBT), by which they agreed to give equal treatment to each other’s exported goods. Essentially, the three parties agreed not to hinder trade by treating each other’s goods less favorably than they treat their own. When the U.S. imposed a stringent COOL requirement on muscle cuts of meat, Canada and Mexico initiated proceedings before the WTO.

On May 29th, after a tortuous dispute resolution process, the WTO adopted a report finding that the COOL requirement violated the GATT and the TBT. On June 4th, shortly after the adoption of the report, they requested authorization from the WTO “to suspend the application of certain tariff concessions and related obligations to the United States.”[2] On June 7, Canada’s Ministers of Agriculture and International Trade issued a statement that included a list of American products that might be targeted if the U.S. failed to comply with the WTO ruling. On the list was wine.

The U.S. objected to the level of sanctions proposed by Canada (CAD 3.068 billion) and Mexico (USD 653.5 million), and the issue was submitted to arbitration. This round of arbitration focused on what we Americans think of as damages. The arbitrator was charged with determining the harm to Canada and Mexico—or the export revenue lost because of the COOL requirement.[3] The arbitrator concluded that the unfulfilled benefits accruing to Canada equaled CAD 1,054,729,000 and that the unfulfilled benefits accruing to Mexico equaled USD 227,758,000. Accordingly, the arbitrator allowed the countries to request authorization from the WTO Dispute Settlement Body to impose sanctions on U.S. goods CAD 1,054,729,000 and USD 227,758,000 per year, respectively.

Meanwhile, H.R. 2393, the federal legislation introduced in response to the WTO’s ruling on the COOL requirement, sat in the Senate for nearly six months until Monday. This bill would repeal the meat labeling requirement altogether with respect to beef, pork, chicken, and goat meat, making the livestock portion of the COOL requirements applicable to lamb only. The latest WTO report might have prompted the Senate to turn its attention to H.R. 2393 post haste, as Senator Jeanne Shaheen (D-NH) on Monday proposed an amendment[4] to the bill.

Even if H.R. 2393 is passed, bringing U.S. policies into compliance going forward, the U.S. could be sanctioned by its neighbors for the time that it was out of compliance with the GATT and the TBT. What remains to be seen is whether, how, and to what extent U.S. wine exports will be targeted for sanctions—an interesting question for sure. I will post updates as they happen.

On another note, I attended oral argument in the Kurniawan appellate proceeding this morning. Stay tuned for a quick update on this case!

[1] A "report" is a decision of a WTO body.

[2] See the summaries for the Canada and Mexico cases. "Suspension of obligations" under the GATT and TBT is the WTO's official term for “sanctions.”

[3] The WTO refers to this as the “nullification” or “impairment” of the promised benefit.

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